Armando (0:00 – 1:05)
Hello, founder. You’ve built a successful business and now it’s time to think about that once-in-a-lifetime exit from your business. You’ve come to the right place.
Here, you will hear business exit professionals involved in the buying and selling of companies talk about what you should know before you exit. If you’ve never sold a business before, this podcast can be super helpful to you. I’m Armando, host of the Founder’s Guidepost.
Enjoy. But first, a quick disclosure. Opinions expressed are those of individual professionals.
The Founder’s Guidepost is provided by Axiom Founders Family Office Inc., a registered investment advisor licensed or exempt from state registration in all states in which it operates. The Scottsdale Founders Forum is a biannual live event for the founder considering exiting in the next five years. More information available at ScottsdaleFoundersForum.com.
If you like this information, please subscribe and share. Hello, this is Armando Ramon with the Founder’s Guidepost here today with Delilah Panio of the Toronto Stock Exchange. Delilah, how are you?
Delilah (1:06 – 1:09)
I’m so great. It’s really a pleasure to be with you here today, Armando.
Armando (1:10 – 1:58)
Oh, fantastic. So Delilah, a lot of companies in the US have these dreams of going IPO and going public. And many, of course, have never gone through that before.
And they don’t know what they don’t know. They hire experts, consultants, et cetera. And they do their best that they can to reach that goal.
But what I enjoyed so much about our conversation recently is that you are another avenue that exists that can help them reach that goal and reach that IPO going public dream. But I would venture to say that a lot of folks here in the US don’t know that you’re there and they don’t know how you really can benefit them. So let’s have a conversation all about that.
And hopefully, business owners who are thinking to go on IPO will listen and they’ll want to contact you. But today, let’s have a good conversation just about how that can work for them.
Delilah (1:59 – 5:42)
Perfect. Yeah, this is exciting. So what we’re really talking about is growth capital, right?
And what are the different options in North America for growth capital, but specifically for US high growth companies? Like you said, they’re looking to get to that ultimate exit of IPOing on a US exchange. And what are the different ways to get there?
So let’s take a step back. Let me just give a bit of context of who I am and how I fit into this. It seems probably strange that why we’re talking about Toronto Stock Exchange for US companies.
So I’m the Vice President of US Capital Formation for TSX and TSX Venture Exchange. And I’ll talk about our two-tier market in a moment, which is very unique in the world. But I’m actually based in Southern California.
And so I cover the Western US and certainly we met through our interactions in Arizona. And so my job ultimately is to talk to US CEOs who are looking for that high growth capital to fuel the growth of their companies as they’re trying to build world-class scalable businesses. And what’s interesting to me, as I represent the Canadian capital markets, is that there is clearly a gap in what the US markets and how they’re serving some of these companies.
So at the end of the day, why are US CEOs of great growth companies talking to me about going public in Canada? And I’d say that there’s a couple of reasons for that. If you look at the landscape of the North American equity capital markets, right?
And so if you look at the private capital options, so you have starting from angel investors to venture capital to private equity, all the way up leading to a potential IPO on a senior exchange like New York Stock Exchange or NASDAQ. And then you have the public markets where, again, as I mentioned, NASDAQ and NYSE, which you can go public at an earlier stage. But are you relevant enough for that marketplace, right?
And then below that, you have the OTC over-the-counter markets. Again, this is a, they are not regulated stock exchange. They are an over-the-counter market, which does serve a lot of early stage companies and public companies in the US, but not in a regulated way in that we do in Canada.
So I would say that that’s the first kind of thing to think about. If we’re looking at this whole ecosystem, if you are raising that sort of series B plus capital, that’s really where we come in, Armando, is in the companies raising their series B. So let’s call it, I mean, the amounts change with the trends every year, but let’s call it that sort of 10 to $15 million capital raise.
You’ve done your friends and family round, you did your pre-seed, your seed, your series A, all of that typically is development capital, right? Where you are accessing those pools of capital to develop your company, develop your minimal viable product, start developing your markets. So once you’re past the development stage, you’re in market, you have early customers, and now you’re looking for that explosive growth capital, right?
So now you’re looking for that much bigger, like I said, a 10, 15, $20 million, and you’re looking at now that capital that’s going to take your company to the next level, typically in that sales, marketing, opening, distribution to several markets. You’ve already have your proof of concept, but now you’re ready to like get out there and really sell. That’s where the public markets, especially in Canada, start to get interested in these companies.
So I’ll just pause here if you had any questions about that, or I’m happy to continue on or any thoughts on that.
Armando (5:42 – 6:09)
So I’m glad that context is extremely, extremely helpful. So if people have been looking and thinking they’re going to go on the NASDAQ or something here in the US, and they want to make their footprint larger, they’ve got to have metrics and traction revenues, all those things that make them a good IPO candidate. If they aren’t aware of the TSX and how you might be able to help them get that, why would they want to go through Canada first to get to the US markets?
Delilah (6:09 – 14:49)
Yeah, that’s a great question. And actually what you just hit on is really what our value proposition is for US companies, right? So let me give you an overview of what the Canadian capital markets look like, and then therefore the relevance for US companies.
And as I said, what our value proposition is for the right kind of company. So uniquely in Canada, TMX Group, which is the company that I work for, owns and operates Toronto Stock Exchange and TSX Venture Exchange. And so TSX is a typical large cap marketplace for public companies.
The average market cap is, depending on the markets last year, different than this year, obviously, but somewhere in the, you know, around the $2 billion range for average market cap. Again, relative to the US exchange, it’s still pretty small cap. And that’s what we’re really great at in Canada, small public companies.
But then uniquely, we have something called TSX Venture Exchange. So this is what we call one of the only regulated public venture capital marketplaces in the world. And so what does public venture capital even mean?
It means that what people would normally think of for raising their venture capital to get to a big IPO in the US, you can actually go public instead and access those venture capital rounds, those series B, C, and D in the public market instead of through private venture capital or private equity. And so, you know, why would you think about that? Why would you do that?
So there are several reasons. And the biggest one is, ultimately, it’s around control, right? So, you know, private venture capital, private equity, you know, are obviously significant forms of capital for the right companies.
They also come with very specific terms that can be potentially egregious to, you know, to the founders of the company. You know, whether that’s, you know, preference shares, liquidity preferences, you know, when you start to get past series B and C, you know, as the founders of the company, you are no longer really controlling your company, right? Because they are now, you know, rightfully so, they’re investing the money into the company, so they are taking higher control of the company.
If you go through the public venture capital market, like on TSX Venture Exchange, you actually can maintain a lot more of your control of your company for a lot longer. So, for example, on TSX Venture, you only need to float 20% of the company with the public to list on the market. So again, if we look at an example of a high growth tech company, you know, they’re raising $10 million, they come to our marketplace at a reasonable valuation at, let’s say, you know, post financing, you know, 50 million, so that’s 20% is owned by the public.
But the other 80% is still owned by the initial shareholders of the company, right? Or whoever the investors are. So, and the big difference is that everyone’s a common shareholder, right?
Unless there’s a unique structure around multi-voting classes, but typically, when you go public, everyone is a common shareholder. And so that is, that means that, you know, you are still controlling, you know, the destiny of the company. So I would say, again, so on the TSX Venture Exchange, the average market cap of the companies are more in the 50 to $100 million market cap range, right?
So these are very early stage, you know, higher risk, but higher potential reward companies. And, you know, we have 170 year history, we just celebrated our birthday a few weeks ago, of Toronto Stock Exchange. And our history, not surprising to most people who know, think about Canada, was built on, you know, mining and oil and gas exploration companies.
So, you know, decades ago, those companies that were high growth, that were sort of really fueling the economy in Canada, needed to go to the public markets to raise that really early stage, pre-revenue exploration capital. And we, in Canada, have just never had the significant private capital that exists in the US, right? Which is where all the venture capital funds come from, the private equity funds come from.
So in Canada, we have always used the public markets for those really early stage emerging growth companies and emerging growth sectors. And so we built a significant market, global marketplace, especially in mining, where we still are the number one mining exchange in the world, 50% of all dollars raised in mining goes through our market. So we have a, you know, significant franchise in mining and in the energy sector.
But in the last 20 years or so, we have significantly diversified our stock list through by the attraction of innovation companies. So whether it was technology companies, life science companies, obviously, everyone knows about the cannabis boom that we, you know, we had that we had when we were listing cannabis companies, you know, Canadian companies, you know, psychedelics, cryptocurrency, there is a, there’s an investor base in Canada, especially on the TSX Venture Exchange that is very interested in, you know, those emerging sectors, the momentum plays, you know, one thing to really think about on any marketplace is who are the investors, right? And so in Canada, we have investors from all around the world, about 40% of the trading comes from outside of Canada. But we have a very robust retail investor base in Canada, which is what really fuels these early stage companies.
And because it’s on a regulated market, there’s a bit more comfort for companies coming to our market. So, so again, we have this, this really unique two tier market of TSX Venture for very early stage companies, and then TSX for later stage companies. And so when we talk about the value proposition for US high growth companies, you know, you can, if your goal is to get to NASDAQ or New York Stock Exchange, let’s say in the next three to five years, you’re sitting here raising your Series B, let’s say it’s, you know, 10 to 15 million, and you have options, you can look at, okay, I’m going to go down the private venture capital route to get there. And that’s, you know, that’s a well worn path, obviously, or uniquely, you can look at coming to our market. And here’s what that could look like.
So you could, the company, if it makes sense from a going public perspective, and we’ll, we’ll dive into that in a bit too, in terms of why you should even go public. And so starting on our market on TSX Venture Exchange, raising, you know, your Series B capital at a reasonable valuation, doing subsequent, hopefully non dilutive rounds of capital on our market, executing on your business plan, you know, reporting on, you know, building revenue, etc, building your markets and graduate to Toronto Stock Exchange. And then at that point, the difference is you’re having it’s higher liquidity and trading.
For most companies, you are likely getting higher analyst coverage, more analysts looking at your stock, and you are likely getting higher, bigger institutional money coming into your stock. So that so that that’s the difference between venture and TSX. And then when you’re big enough and relevant enough, and this is really the key word relevant enough, you do a list on to New York or NASDAQ.
So your end goal is still getting to the senior exchange in the US, but your path to get there is different. And what’s brilliant about this path as well come through our markets is that we actually have an agreement between the two countries, something called the multi jurisdiction disclosure system MJDS. And what that means is if you have been trading on TSX or TSX venture for one year, then you can and you apply to NASDAQ or NYSE, then you you can use your disclosure documents that you’ve been filing for a year as a public company in Canada, as part of your applications, you don’t have to redo the whole s1 and all the time and costs that come with it.
This the US exchanges will take your disclosure documents as part of the application. So that just saves a lot of time and money. And that we there are a significant number of companies that are dual listed.
Last year, we had a record about 45 companies from our market, TSX or venture dual listed on to New York or NASDAQ. This year, I think we’re probably around, you know, 20 or so. And so every year, so it’s a well worn path, right, that companies are looking at more and more.
And including from the US.
Armando (14:50 – 15:12)
Wow, fantastic. Fantastic. So last year, you said 2021 was a record 2022, a little bit less.
But But obviously, there is reason why people are going through the Canadian markets first. But like what you said about maintaining control, where you don’t have to give up or give away all the company, but you’ve got to give up maybe you said about 20%.
Delilah (15:13 – 24:48)
But the start, yeah, yeah. And then and then you obviously, the more capital you raise, you are you’re, you’re, you know, issuing more and more shares around that. But the key again, is that, you know, they’re common shareholders.
And so you know that there you don’t have the preference shares, you know, that you have with with taking venture capital, it’s also permanent capital, right? So it’s, it’s just a different form of capital. But what I’d love to do is talk about, you know, how do you even think about going public, if it’s even right for you, especially at this early stage, because again, you know, in the US, the the mindset is you have to wait to be a really big company, like a billion dollar company to go public reasonably, right.
And that’s fair, because even though there are a lot of companies that go public earlier, it’s very difficult to maintain, you know, the share price, etc. Like, for example, on the senior changes in the US, if you’re a small early stage company, it’s really difficult, look at the companies that listed last year in this, that high valuation year, and then this year is going to be more challenging to maintain that share price. So I would predict there will be a lot of D listings, you know, in the next year or so for those companies.
So again, you want to be looking at a marketplace that’s relevant, but but let’s even just step back and think about, okay, if you are a CEO, founder of your company, you and your management team are thinking about how do I, what am I, again, looking at the landscape of options from my series, let’s say my Series B capital, how do I think about going public? And if it’s even right for me, so I’ve coined something called the four Rs, which are just easier to remember information. And I think I think you saw my presentation back in October that that went over it.
But I think it’s really helpful to really get into the into the head mindset, really, of the founders. It’s like, okay, the first R is reason. Does this company have a reason to be public?
So most companies, as we know, should not go public, right? And most most US companies should not go public in Canada. So it’s how do you know if you’re the right company that this makes sense, compared to all of your other capital raising options.
So starting with reason, you have a reason to be a public company. So this would be true of looking at going public on any market, not just our market. So would, would this company benefit from being a public company?
And so what are those benefits? So obviously, the number one thing is access to capital. In theory, the public markets are unlimited, you can go back, you know, to the to the market, assuming you’re again, executing your business plan, etc.
So access to capital, ongoing, you know, in theory, forever, right? Permanent capital, again, acquisition currency. So this is probably the number one reason why most early stage companies consider going public at an earlier stage is because if you are a public company, and can use your stock as currency to make acquisitions, and you have an aggressive acquisition strategy, then that can be significantly less expensive than having to raise private capital to make an acquisition, right?
So, so today, if you were, you know, a decent public company, and there was a lot of inexpensive companies to be buying right now, right, likely in your vertical. And so if you are public, that that could be an easier way and less expensive way to grow your company, not just through organic growth, but through acquisitions. So that’s, that’s another big one.
Another one is just exposure, you know, being, you know, when you go public, even on a junior, earlier stage on TSX Venture Exchange, you have gone through a vetting process, someone outside of you, and your investors has gone has looked at your company, whether it’s the investment bankers who take you public or the TSX Venture on the listing staff, we have looked at your company, we have, we have validated that it’s a real business, you have to have audit financial statements.
So there’s real information here. So if you are a growth company that’s looking for that credibility, that you are real, and that your numbers are real, being public can give you that credibility, even on an early at an earlier stage. Another benefit of reasonably public is, again, like I talked about earlier, diversifying your shareholder base, right, is to is to have, you know, clean up the cap table, everyone’s a common shareholder diversifying.
So it’s not just one or two that are controlling the interests of the company. And then the last really big reason why a lot of companies go public is for incentives for their employees to create, you know, stock option plans to, to reward employees by giving them a real path to liquidity, versus if you’re a private company, and you stay private, really, like much longer than than probably intended, your employees are not benefiting from that, like, there’s no exiting, they can’t sell the shares, whereas if you’re public, and you’re and you’re getting stock options along the way, you might be able to like, you know, to liquidate some of those shares and do things like buying houses and paying off students, but and all the all the reasons you know, that people really, you know, want to benefit from the growth of the company that they’re participating in, right. So that so, so from a reasons to go public, you know, the every founder should think about, okay, what I benefit from having all of those, you know, realities, whether it’s access to capital, acquisition, currency, stock options for employees, diversifying shareholder base credibility. So, so if that makes sense, if after a founder has thought about that talk to their shareholders, it’s like, yes, we would really benefit from being public, and earlier than what we thought.
So that’s, that’s the first one. That’s the first R as reason. The second R is ready.
So are you ready to be a public company, it’s a big deal to be a public company on any market, even at an earlier stage. And so what does that mean? What does readiness mean?
As I mentioned, you need at least two years of audit financial statements to be on TSX Ventures. So that can be a big deal for a lot of companies, depending on their financial systems, you know, getting things audited. But I will also say it’s easier to do when you’re a younger company than later, right.
And so there’s, there’s a discipline that happens when you go public. So thinking about are you ready to have internal controls and having more, you know, disciplined financial management of the company, again, that can benefit a lot of companies. Think about some of the companies that have blown up later that if they’d been public earlier, that, you know, some of that stuff wouldn’t have happened because they would have the discipline.
Right. So, so that’s a big one, the readiness around audit financial statements, internal controls, we’re going to, you know, is your management team ready? Do you have the right CEO?
Do you have a CFO with public company experience? And this is where often you’ll see the founder, you know, that might be the scientist or, you know, the, the data person or the product developer, you know, steps aside so that a public company CEO can come into place because it’s a different game. And when you go public, you’re literally running two businesses, you’re running your company, and then you’re running the public company.
And so in the readiness bucket, you have to be ready that the CEO’s time will be significantly taken away for investor relations. So, you know, once you go public, that’s just the beginning, right? You have to have continuous sharing and communication with your investors, current ones, and then always exploring for new ones, right?
So who’s running the company when the CEO is doing that. So, so in that readiness thing, you have to really think about that, of who’s running the company. And then probably one of the, and I think with your board of directors, you know, you’re, you’re going to move from a advisory board, you know, private company situation to a public company board where those board members now have very specific, you know, fiduciary and legal obligations.
And so is your, is your, are you ready to move into that kind of a scenario where you have a public company board? And then probably the biggest one on, on the readiness side that causes a lot of companies to pause as it should, and a lot of companies to not go public is transparency. So you, you, you are now all your business is out there in the public, your financial statements are in the public, your strategies in the public.
And for most companies that are growing, that’s not a positive thing because you’re, you know, you’re pivoting, you’re making mistakes, you’re doing all of that. But for the right company, it’s actually a brilliant thing because again, it causes that discipline for you to create a company that can be open to transparency. And I’d also say that depending on what sector you’re in, sometimes we’ve had a lot of companies had one recently that their next competitor is a big public company, that if you look at them financially, that their competitor, they’re not doing that great.
But the, but the private company, their information is not out there. Right. And so, so actually that that company looks better financially and as a better potential, you know, for their customers.
So sometimes, you know, customers will look at, you know, if you’re a public company, they’re looking at you too. Right. And if you are a good, healthy company, it can actually benefit you that transparency.
But that is a really big one that most companies really, you know, get stuck on. I’ll maybe see if you have any questions before I move on to the third or fourth R.
Armando (24:48 – 25:19)
No, no, no, keep going. I love what you’re, I love the information that you’re, you’re putting out there. And I just think that it’s so extremely helpful just having you explain it and walking through what it really means.
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Delilah (25:19 – 30:15)
Okay, good. Perfect. Okay.
So we’re, so we did our number one was like, do you have a reason to be public? Two is, are you ready to go public? Three is requirements.
So do you meet the listing requirements of the exchange that you’re considering? So one of the things I’d love to share is that the difference between the listing requirements from say NASDAQ or New York Stock Exchange compared to our, our listing regime. So in the U S the, the, the exchanges there, this requirements are based on things primarily on market cap, share price, shareholder equity.
In our market, we are, our listing requirements are based on the financial fundamentals of the company. So for example, we’re looking at things like revenue, net tangible assets, working capital. So these are especially, you know, revenue, NTA, these are factual numbers, right?
You can’t manipulate the numbers. You can’t shift the numbers. You can’t sort of bend yourself into, into those numbers.
They are what they are. Whereas, you know, market capture, share price, et cetera, can be, you know, can be adjusted, can be manipulated depending on timing and just agreement of all the parties. Right.
And so on our market, especially on TSX Venture Exchange, you know, because we list pre-revenue companies, you know, how do you, how do you, you know, look at valuing those companies, et cetera. But the key is we want to make sure that the investor base knows that these are real companies and that they are, you know, saying what they’re saying is true. And so we’re looking for those like real factual numbers like revenue, NTA, R&D spend, et cetera.
And then for the pre-revenue companies. So what happens if you don’t have revenue? How do you come to our marketplace on venture?
And that we’re looking for working capital. And so what that means is when you apply to TSX Venture to list, we will ask for your business plan and you will say, okay, to keep the lights on for the next, let’s say 18 to 24 months, we need $10 million. And here’s our business plan.
Here’s our budget. We will review it. We will agree with you.
And then, so then the condition to listing on TSX Venture is that you have to raise that amount of money to have that working capital in your treasury on the day that you go public. So if you say that you need $10 million, then you have a $10 million or you have to raise that $10 million in your treasury. And that also helps us to know that the public is interested.
Like if you can, as a pre-revenue company, you can raise $10 million and the public is interested in your company and they want to be part of your opportunity. So that’s kind of how that works out in terms of our listing requirements. But again, very, very different regime than in the U.S. And we have, and I’ll share with you, or somehow you can share in the show notes later, our U.S. website, which is us.tsx.com.
And in there is our guide to listing, which very clearly shows everything I’m talking about, including the four Rs are all in there, but also the listing requirements. And you’ll see what’s is there’s a matrix. So if you’re a pre-revenue company, if you don’t, if you have revenue, then you meet this category.
If you don’t have revenue, then we’re looking for this and this and this. And you can, so it’s a little bit of a matrix. And the point of that is we really want to help companies access the public markets if they’re the right fit.
And so we will do what we can from our listing requirements to, you know, to fit you in. And again, if there’s investor interest and that kind of capital is being raised, then we, you know, we want to do our best to help that company get listed. We’re very, very customer service oriented.
And because we ourselves are a public company as well, TeamX Group is listed on TSX. And so we, you know, we’re very interested to help our companies and we understand small micro-cap public companies. We’ve been doing this for a very long time.
And so there’s this infrastructure that has built in Canada over that time where the securities commissions, the exchanges, the investors, both retail institution, the analysts, everybody gets really small public companies. And what’s interesting because we have this very robust retail investor base in Canada, where most of us, you know, back when I lived in Canada, you know, even my retirement money is being invested into very early stage companies, but there’s an opportunity to, you know, invest in it, to be basically be like a venture capitalist, right? Like you’re getting in on these deals that you would never get to see in the U.S. And that’s exciting, whether it’s a mining or crypto or a tech or an ad tech or clean energy now is obviously going to be a massive sector in the new years. So that’s the third R on requirements. Any questions on that?
Armando (30:17 – 30:19)
No. All right.
Delilah (30:19 – 35:32)
Well, then let’s go to the last one, which is like a lot out there. What is the fourth R, right? So, okay.
So here’s the thing. You can have every reason to be public. You can be ready to be public.
You can meet our list of requirements, but what is the reality of your company getting financed in today’s market? So the fourth R is reality. And what does that mean?
Can investment bankers or brokers, you know, basically sell your deal today to their investor base? And that is what changes all the time, right? Last year, the companies were talking to very different conversation than this year.
Last year, many companies could go public and did go public. We had a, like in the U.S., we had a record year on TSX for listings and graduates from venture to TSX and dual listings. And in the U.S., we had a record year of U.S. listing. We had 25 U.S. listings last year. Typically, we’ll get 10 to 15. This year, even in a down market, we’re still going to be closer to 20, but very different conversation than last year.
So, you know, last year, what was driving the new listings was definitely the innovation sector in, you know, technology, life sciences, lots of different kinds of companies were listing last year, like in the U.S. This year, obviously, as we know, you know, both the IPO market in both Canada and the U.S. has basically been closed. But because we had on the venture exchange, you’re listing more through a reverse merger into a, it’s likely into a clean shell, which is our capital pool company program, CPCs, which are similar in essence to SPACs, but very different in terms of the reality because, you know, SPACs were true acquisition corporations with billions of dollars in them. And we saw what has happened, obviously, in the SPAC world, where, you know, 80 to 90% of all the funds raised were, there was a redemption of those.
So even if you end up listing through a SPAC, you have to still go and do a raise, you know, a pipe, you know, versus because that money wasn’t in the treasury when you listed. And then there’s just been a lot of issues around the SPACs, a lot of, you know, a lot of lawsuits, a lot of, a lot of issues. And, but in our market, the CPC, the capital pool company program.
So these are basically, in essence, mini shells. So what it is, is, you know, three to five people get together, you know, put in their seed capital, and then go to the public and raise up to 10 million. So these are the maximum that are in these shells are $10 million, but they’re clean, they’re only, you know, there’s just the cash and the directors, that there’s no, there’s no previous operating history.
And then those companies like a SPAC, then, you know, then have, they go out and look for a company to take public. And it’s, but it’s really more of a listing vehicle versus a financing vehicle. Because again, there’s only up to 10 million, but most CPCs have closer to around a million or under a million.
So why would a company do that, right? It’s because they want to access the public markets, they’re only raising, let’s say, $10 million, which they can raise through some family offices like yourselves, or, you know, a few institutional investors and some retail, but you need to have those, you know, those 200 shareholders to list on our market, right on the venture exchange. So the CPC has 150 minimum shareholders in it.
And so you’re using that shell, the listing vehicle. It’s also a Canadian C Corp. And so, you know, one of the considerations of listing as a US company is that you may want to, you know, be deemed a foreign private issuer in the eyes of the SEC.
So you can delay registration with the SEC, and therefore delay, you know, compliance with Sarbanes-Oxley and some of those, the SOX, all the bigger, high priced, you know, realities of being a small public company in the US. And so in Canada, we have what we call right sides corporate governance. And so if you are listed on TSX, you’re basically complying with SOX-like compliance.
But if you’re on the venture exchange, we have some car votes, because we understand that small public companies need a break. So whether that’s giving, allowing more time to do your quarterly and annual filings, there’s no SOX 404 equivalent, which is the audit of internal controls, which is very expensive. So we really understand small public companies.
So the corporate governance is different. So you could, and many companies do, US companies, you know, have a US or have a Canadian C Corp as a holding company. And there’s structures around this, that you could become a foreign private issuer in the eyes of the SEC.
And then, and having going through a CPC is one way to do that, because it is a Canadian C Corp. So, so that’s a little bit about, you know, how ways to list on our market, you can do an IPO, you can do a go through a CPC, you can do a traditional reverse takeover through an existing shell. So we so we have the point is, we have several ways to list that are conducive to being a small company coming to the market for the first time.
Okay.
Armando (35:32 – 35:56)
And you mentioned, you talked about costs and fees, Starbanks, of course, very expensive, very intensive to get, get that addressed. What about, can you talk about the, the costs? So somebody going through the US markets expects a certain level of costs with the audited statements and everything else that has to happen.
What does that fee structure look like? How does it differ going through the Canadian market first?
Delilah (35:57 – 38:36)
Yeah, absolutely. So I’m going to give you some averages, obviously, they depends on the readiness of the company and the structure, etc. But on average, for a company listing on TSX Venture Exchange, and these numbers include the things like the, the legal fees, and you’re going to need Canadian securities lawyer, as well as your US securities lawyer, your audited financial statements.
So again, that that can range depending on how how ready you are for an audit. So if you think about legal fees, auditing fees, our fees at the exchange, you know, investor relation fees, which are, you know, required, it does not include the, the broker dealer fees or the investment banking fees, which are similar to the US, you know, that five to 8% of any capital raise. So if you take that part out, and it’s just the actual, you know, the other fees, then on average, if you’re looking at three to 500,000 Canadians, so if we call it, you know, 250 to 400, us, that, you know, so that that’s like all in listing.
And then ongoing, you’re looking at, you know, somewhere between, you know, 100, 150, 200, you know, ongoing, one of the one of the so there’s a big difference in cost, right. So in terms of just the cost of the the fees that are in Canada, versus in the US. And then the other thing that really needs to the US companies need to think about, especially if they’re thinking about going public in the US at an early stage, whether it’s OTC, or early early NASDAQ capital market.
One of the biggest things is DNO insurance, right. And so DNO insurance is very expensive in the US because the US is a very litigious market, right? I mean, it’s just a litigious country, in general.
And so, you know, if you, if you own one share of a public company, in the US, you have the right to cause a lot of havoc. And unfortunately, that happens, the level of shareholder activism in the US, especially for early stage companies is really, really high. And so that impacts the cost of your DNO insurance.
In Canada, we have British rule, British law. So what that means is, if you bring a frivolous lawsuit to, you know, to bear in Canada, and you lose, you pay everybody’s fees. So it’s a significant deterrent from bringing, you know, a lot of lawsuits.
And so what that means is that the DNO insurance is way more reasonable, because they’re just the likelihood of shareholder activism in Canada is much, much, much lower than in the US.
Armando (38:37 – 38:43)
Okay. Yeah, we are a very litigious country in the US.
Delilah (38:43 – 38:46)
I know. It’s, it’s, it is what it is. Yes, yes.
Armando (38:46 – 38:46)
Yeah.
Delilah (38:46 – 38:49)
But it has an impact. Yeah, for sure.
Armando (38:49 – 38:58)
Okay. And you said ongoing costs as well. So the cost to, of course, go through the process, but then ongoing costs year to year after that?
Delilah (38:58 – 40:20)
Yeah, because you know, you have on every year, you have auditing, auditing costs, legal costs, structuring costs, our fee, again, every year, we call them sustaining fees, you pay a fee to the exchange every year. And then one of the, one of the costs that needs to be considered is investor relations. So it’s really important, you know, to have an ongoing communication strategy for current and new investors.
And, and there are all kinds of types of investor relations, whether that’s doing roadshows, doing events, doing online, you know, there’s, there’s some good, there’s some not so good, you know, there’s, there’s a lot of, you know, there’s a lot of different things, but you have to, as a strategy, look at all of the different ways, because, you know, it’s always interesting to me how companies come to our market, and then they complain that they have no liquidity. But then they don’t do any investor relations, you know, we have 3000 public companies in Canada, how do you get noticed, right? You have to be out there talking, you have to be at the events at the roadshows talking to retail investors talking to institutional investors.
And you need, you know, ideally, a sophisticated investor relations strategy. So whether and you know, typically, that’s somewhere, you know, 10, at least 10,000, you know, a month for for decent IR. And you’re and you’re looking at cross border, right?
You’re looking at in Canada, you’re looking at the US because you obviously want your US shareholder base to grow as well.
Armando (40:21 – 41:34)
Okay. Okay, so let me describe a situation I heard a business owner talk about recently. And, and let’s say that, that he wanted to go through Canada to go through what we’ve been talking about for his own business.
So he’s in the medical in the medical device space. And he thought that his company had a certain multiple, that he was going to sell it, get that multiple, take the money roll into his next business, whatever the next business is. But he along that process, realized that if he increased the size of his footprint, and and bought other smaller companies that were in his same space, and then his company itself became larger through those acquisitions, that rather than get that multiple, which might have been a 3x multiple, he could maybe get a 6x multiple.
And so that became his goal. And that began that became what he began to work towards. So assuming that he met the requirements in Toronto, in the Toronto Stock Exchange to list their assuming met those requirements, how might you facilitate and help him reach his ultimate goal of having a company that is worth more, that he can sell for more and net more at the end of the day?
Delilah (41:35 – 45:01)
Yeah, so you know, a few things on that, like again, you know, multiples are always obviously a key key metric, and that and that changes all the time, right. And so like what what the multiples were last year, private and public markets, what they are this year are very different. I think that, you know, you know, often the private markets will will offer higher multiples.
But I think that we’re now like we’re seeing like, those are coming down to right, we we know that the public market valuations are down significantly. That’s obvious from every every, almost every company is down 70 to 80% from from a year ago. But, but in the private markets, you know, they’re coming down as well as as you know, VCs, private equity guys are looking to how to do follow on funding, you know, for for their companies and, and at what valuations right and what’s going to get funded next.
And so it’s always it’s always, as I said at the beginning, it’s always important for the founders to know all of their options so that they can make an educated decision about, okay, I know what I can get in the private market, what can I get in the public markets, right? So at least have that conversation to find out. And so, you know, my role in helping to facilitate, and I by the way, I have a colleague in Chicago and a colleague in Dallas, so we’re team USA cover covering the US.
And so it’s, it’s, it’s, you know, coming to me, you’re showing me your deck, looking at the financials, and we’re talking through your goals, where do you want to be in three to five years, if you just want to sell your company a couple years, then don’t go public. I mean, it’s way too much time and effort. And you know, it’s not the right thing.
Not to say that you can’t go public and still get bought, because I can tell you, there’s a lot of inexpensive public companies right now that are being taken private, for sure. And that that will likely continue to happen into the new year. But if you are looking again, your your goal talking to me should be to get to NASDAQ or New York Stock Exchange in the next three to five years.
And we are one way to get there. And how I help facilitate determining if it’s the right choice for you is by introducing the company to the capital providers in Canada. So whether that’s to CPCs, and you I think you’ve had a couple of those when we were in Scottsdale a couple weeks ago, that are looking for deals that have that they have their CPC ready, ready to go.
I introduced them to, you know, retail brokers who can also provide a lot of that financing opportunity on the raise, and then Canadian investment bankers who ultimately take the company’s public and so that it’s it’s important to explore. And if it’s the right time and the right fit, and I can make those introductions, and there’s interest, we actually have a deal portal, as well at TSX, where we put all of our prospects on there. And then CPCs and bankers and brokers can look at those companies, if they’re interested, that I make those introductions, and I help facilitate all those introductions, including to advisors, whether it’s the Canadian lawyers or auditors as well.
So that a company like that, when you’re talking about this medtech company, can get some, you know, intel to see, oh, maybe I can get a better multiple in the public markets. But it’s also just not about the multiple. It’s about the growth strategy.
Again, would my company benefit from being public? Can I make those acquisitions if I was public? And then, and with the credibility and everything helped me to raise the capital I’m going to need for the next two to three years to ultimately be able to get on to NASAC or New York.
Armando (45:02 – 45:25)
Okay. Okay. And so when they’re going through this process, you’re obviously talking with them to help them understand, you know, like you said, the four R’s that you have, are they ready?
And do they meet the requirements, et cetera? And I imagine sometimes you might tell them, you know, you’re really not ready yet. Go back and do X, Y, Z, go work on X, Y, Z, come back in six months, 12 months, and let’s have another conversation.
Delilah (45:25 – 46:56)
Yeah. Yes, exactly. And the thing about, you know, what I’m doing today, it’s a very long process, right?
And so companies that are listing now, we’ve been working with them for one year, two years, you know, I mean, it’s, it’s the practical rally of a company I talked to today with the time they’d start trading, it’s because of all the things that they have to do to get ready. And then, and then just market timing, right? I mean, it’s, it’s, there were a bunch of companies that were, you know, ready to go public this past year.
And then just the market timing just didn’t work or their sector fell out of favor, which happens, right. Or they realized this wasn’t the right timing for them. And so it’s really important to start the conversation.
You know, saying to me like, oh, well, no one’s talking about going public now because of the current markets, but this is the best time to be thinking about going public because you want to be ready when the market opens, whether it’s, you know, six months or nine months or 12 months from now, and you want to have, you don’t want the market to open. And then you’re like, oh, I don’t have audit financial statements. It’s going to take me three months to get that.
Right. So, so this is the time to be exploring, to talking to people like me, talking to, you know, Canadian capital providers, getting ready and, and talking to the exchange or listing staff about any potential, you know, pitfalls or, or bumps we need to need to need to sort out now. So now is a good time to be preparing or at least exploring, you know, which market should I go public?
What do I have to do to get public? And that’s, that’s the work that I do with the company.
Armando (46:57 – 47:14)
Okay. And that makes a lot of sense, right? The timing to go public has to be right to get the optimal, the numbers that you want.
And if it’s a depressed market, maybe waiting, preparing, getting ready so that when that time comes back or that the time is right, then you’re ready to go at that moment.
Delilah (47:14 – 48:32)
Yeah. And I’d also, you know, invite companies, especially in the U S you might not have the mindset of, you know, going public at a reasonable valuation, including in these markets right now, because then you have way higher chance of going up. Right.
And so again, if, if, if, if listing on our market is not a liquidity event, it’s a growth capital event. So you, you are coming to our market on TSX Venture. You’re going to be escrowed because you’re, you’re, you’re early stage, you know, as you should.
And, and you want to come in at a reasonable valuation to be able to go back to the market at subsequent non-dilutive, you know, rounds of capital so that when you do get up to NASDAQ or New York you are, you have done it in, you know, if you, if you list this year, there’s a higher chance of you doing this, right. Going up in the next, you know, few years, if you listed last year, you know, now you’re here and now you’ve got to go back up again. Right.
And that’s, that’s a hard path to take. And so I talked to a lot of CEOs and it’s, it’s really difficult being a small public company which is why you have to have the right reasons and be ready to do it. But this is, I would, yeah, I encourage any companies that are thinking about in the next, yeah, six, nine, 12 months that they would like to be looking at the public markets that this is the time to look at it.
Armando (48:33 – 49:26)
Okay. And another situation Delilah, speaking to the business owner here recently who told me that, well, they, they, they launched themselves right around 2008, just before 2008, then 2008 came, it really knocked them down. They really had to rebuild and rebuild and rebuild.
And it’s been a long path to get here to 2022, where now they’ve got about 10 million in gross revenue, taking a lot of time to get there, but now they feel like they’re back, they’re back solidly on their feet. And they mentioned specifically, they’re not really looking to sell and have an exit, but looking to get some money to grow and put in place what they need so they can really fill in those gaps as a company to then either maybe then have an exit or maybe then partner with somebody. But it sounds like where they are today would be a ripe place for you to have a conversation with them.
Yes, yes, that might go.
Delilah (49:27 – 51:13)
Yeah. Cause again, this isn’t, this isn’t, this isn’t, TSX Venture is not an exit, right? It’s, it’s, it’s, it’s, it is, it’s a growth tool to get you to, to an exit later.
Right. And so, and even just the fact like I said, like on TSX Venture, when you list the management team and the insiders will all be escrowed. So they can’t exit if they wanted to.
I know it’s a time to release escrow, but because we’re saying to the markets that these are earlier stage companies, they’re true venture deals. And so we’re going to make sure that they don’t just go public and, you know, dump their stock, that they’re, they’re in it for the long haul as you are coming in at the high risk stage. Right.
And so, so that, that that’s why our market does work like that is because this is, it’s not so, so not thinking about TSX Venture as an exit or liquidity event, but as a true growth tool you know, to, to, to grow. And, you know, we have several companies on our market, you know, and you know, that list in the last couple of years have been public for a long time. I know we have a podcast as well.
Maybe we can put that link in the show notes, maybe as well. Where, you know, my, my colleague, George and I, we interview our U S CEOs and talk about like, why in the world as a U S CEO, would you go public in Canada? And we have some really, really great conversations.
I know my colleague, we’re just about to release one by the real brokerage out of New York. And, you know, they’re, they’re dual listed on NASDAQ and they’ve had a really, really great story. And a couple of other ones like edge TI they listed a year ago and I interviewed the CEO and the private equity in a primary investor and why they brought it to our market.
So yeah, there’s, there’s some really good conversations for people to hear, not, not just listen from me, but actually from CEOs who have done it.
Armando (51:15 – 51:32)
So Delilah, another question for you, somebody who’s, whose ultimate goal is to go IPO in the U S markets, but they’re going through Canada to get through you to get that growth capital. How long would they be there before they would try to get to the U S markets? Then is it a two year, three year, five year?
Delilah (51:32 – 52:45)
I mean, it totally depends on the trajectory. We’ve had everything from like, you know, under a year to like, you know, several years. Right.
So it really depends on the sector, the trajectory, the relevance, you know, to the, to, to the U S markets. Like, let me give you, put this in perspective. If you are a billion dollar technology company trading on, you know, in the U S you’re, you’re like, like 425, right?
Like that’s how many companies that are bigger than you exist. And you’re a billion dollar tech company. If you’re a billion dollar tech company on TSX, you’re more like 25 or 26.
So that just means you are a much bigger fish in a, in a smaller pond. And what does that mean? That means institutional investor means exposure means analyst coverage.
So if, yeah, if you’re like 400 something in the U S and fewer, and I’m talking about a billion dollar company. So now imagine if you are a hundred million dollar tech company or a $250 million tech company in the U S what number you would be. And therefore what limited interest you’re likely to get because of your size, whereas in Canada that you’re still, you know, you’re, you’re, you’re, you’re much going to be much higher up on the list.
And so you’re going to have more exposure to investors and analysts.
Armando (52:46 – 52:53)
Okay. So Delilah, what have we not talked about yet in this conversation? That’s relevant that maybe we haven’t touched on.
Delilah (52:54 – 53:19)
I don’t think anything. I mean, I mean, we can talk a bit more about, I guess maybe it’s case studies, but again, you can go to our website, us.tsx.com. You can definitely download our guide to listing.
It has a lot of this information in there, a lot of questions, and there’s actually a full on checklist. You know, so if you go through that checklist and it doesn’t scare you, and you’re still like, this is interesting. Yeah.
That’s when you reach out to me.
Armando (53:20 – 53:54)
So let me just summarize a couple of things that you mentioned. TSX is, is for really growth capital, not exit, but for growth capital. It’s another means to get that capital to grow the business.
Correct. Yes. And a couple of other things you said that another, another plus is that the owners of the business investors, they can maintain control.
They don’t have to give up so much, so fast. So they can keep growing, get that capital without giving up so much of the, of the, of the monies. You also said the TSX venture is really for pre-revenue.
Is that right?
Delilah (53:55 – 54:13)
It can be, we, we do have a list of requirements for pre-revenue. Obviously in these, these markets right now, it’s harder for pre-revenue companies to list. Right now, most, most of the markets are looking for revenue, you know, proof of concept companies, but, but we have a listing regime for, that allows for pre-revenue companies to go public.
Armando (54:14 – 54:19)
Okay. And the companies you said, 50 to a hundred million dollars. Yeah.
Delilah (54:19 – 54:24)
And market cap, like on, on vent TSX venture. Yeah. TSX is more in the one to $2 billion range.
Yeah.
Armando (54:25 – 54:33)
Okay. And the CPCs exist, of course, as, as a means or they’ve got, they’ve got money. So you’re looking for companies to work with, to go through the Canadian markets.
Correct.
Delilah (54:34 – 54:34)
Exactly. Yes.
Armando (54:34 – 56:13)
Okay. And then you had your four Rs. You talked about the four Rs and them being, do you have a reason to go public?
Are you ready? Do you have the right internal controls, financials, audit, audit statements, the right team in place? Do you meet the requirements and the fundamentals for revenue, et cetera?
And, you know, reality, what’s the reality that your current people can, can raise the money that you need, that you think you need to really grow this business. And if that reality is there that they can raise it otherwise, then maybe, maybe this isn’t the best choice, but if not at least have a conversation and consider going through and having a conversation with you. You also mentioned the costs that the cost can be quite a bit less to get there, to get that extra growth capital they might be looking for.
Whereas if you go through the public markets in the U S it can be quite a bit more expensive. And you mentioned specifically Sarbanes-Oxley, which of course has a lot of requirements and a lot of expense attached to it. And that you don’t really have to go through that going to the Canadian markets because Sarbanes-Oxley of course is a U S a U S public company thing.
And then investor relations, you’ve mentioned a few times, and you mentioned also liquidity in that same breath that investor relations in Canada, really, it’s really important that that is part of the budget and that being part of the budget. So people, the investors, they’re in the investors know that your company is there, what you do, why you do it. But so you’re doing your own, sounds like your own PR for the investor.
So they really understand who is this company and that that will help create the liquidity. If there’s some desire for liquidity in some of that stock.
[Speaker 3] (56:13 – 56:16)
Exactly. Yes, that’s right. Yeah.
Armando (56:16 – 56:38)
Okay, good. And anything, I know you touched on only a few of the things that you’ve mentioned, and thank you so much for sharing. So clearly the information that you have, anything that I didn’t touch on that really is something that really needs to be drilled home for the listener.
Who’s thinking about getting that equity, that, that growth capital that they so badly want for their company.
Delilah (56:39 – 57:31)
Yeah. I would just say that every, every, you know, management team, every founder needs to be looking at all of their capital options, you know, whether that’s equity, whether it’s debt, whether it’s private, whether it’s public, whether it’s in the US or Canada, and we are one option for raising capital that should be considered again, not right for all companies go public, not right for all US companies go public in Canada, but it might be the right option for you that you had not even thought about. So again, the true value proposition is coming to TSX Venture, you know, graduating up to Toronto Stock Exchange.
And then when you’re ready, you know, ready, and relevant dual listing on to NASDAQ or NYSE. So that should be the goal of the company to get to a senior US exchange. And we are one path to get there that may not be thought about that, that I would encourage founders to at least explore.
Armando (57:32 – 57:37)
Okay. And then Delilah, you said that the website is us.tsx.com?
[Speaker 4] (57:37 – 57:37)
Yes.
Armando (57:38 – 57:45)
Okay. So that’s where they can go see those requirements and know for themselves what they really will need to have and be prepared for.
Delilah (57:46 – 58:11)
Yeah, they can also reach out to me through that platform, or if they’re in one of the other regions, if they’re in the Midwest and Chicago area to reach out to George or Eric is in Dallas, so in Texas, if you’re sort of West, West, West half of the US and then sort of reach out to me. But yeah, that’s it. People can also reach out to me on LinkedIn is probably the easiest thing.
Or I can give my email that if you want to put that in the notes as well.
Armando (58:12 – 58:19)
Whatever, whatever means you prefer people contact you at. So we’ll put your, your contact information in the show notes, of course.
Delilah (58:20 – 58:20)
Yeah.
Armando (58:20 – 58:22)
Should they reach you then through email, LinkedIn?
Delilah (58:22 – 58:24)
Email is definitely email. Yes.
Armando (58:24 – 58:26)
And what is your email address?
Delilah (58:26 – 58:36)
So Delilah, D-E-L-I-L-A-H.Panio, P-A-N-I-O at tmx.com.
Armando (58:36 – 58:43)
Okay, so Delilah, D-E-L-I-L-A-H.Panio, P-A-N-I-O at tmx.com.
Delilah (58:44 – 58:44)
Yes.
Armando (58:44 – 59:07)
Okay, good. So we’ll put that email address there. We’ll put the address of the, of the US.tsx.com as well. And then you said also through LinkedIn, people could look you up and reach out to you there as well. And then one last question. So you’ve got someone in Texas, someone in Chicago, and you in beautiful Southern California.
How did you get Southern California?
Delilah (59:09 – 59:25)
Well, I was actually already living in LA when they decided, TSX decided to put somebody in market. And so it just worked out really because I worked for TSX in Toronto for 10 years. And then I moved out to LA to do other things.
And then I’ve been in market for the last five years in Southern California.
Armando (59:25 – 59:39)
Okay. Fantastic. Fantastic.
Delilah, so much. Thank you so much for the time today. We’ll put your contact information there and people who have heard the conversation and think they should have conversation with you, don’t know how to reach out to you and hopefully some will.
Delilah (59:39 – 59:43)
Yes, perfectly. Thank you so much for having me on today. It’s been such a pleasure.
Armando (59:43 – 1:00:16)
Great. Thank you. Thinking of exiting your business, you may have only one chance to get the sale, right?
Your family depends on it. Come here. Experts who plan and negotiate successful business exits for a living.
Bring your questions, live panel discussion, followed by Q&A. Join us Thursday, April 27th, 2023 at the next Scottsdale Founders Forum, a biannual live event for the founder considering exiting in the next five years. More information available at ScottsdaleFoundersForum.com.
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